Act on the Designation, etc. of Free Trade Zone (Republic of Korea)

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1 Act on the Designation, etc. of Free Trade Zone (Republic of Korea) By Ministry of Legislation INTRODUCTION Details of Enactment and Amendment Enactment: This Act was enacted on January 1, 1970 as Act No (the Establishment of Free Export Zone Act) in order to induce investment by foreigners by establishing Free Trade Zones in littoral districts of the southern coast which is comparatively adjacent to the international transport lines. Amendment: This Act was wholly amended into "the Act on the Designation, etc. of Free Trade Zone" in 2000 in order to reorganize previous free export zone into a Free Trade Zone in which free manufacture and trade activities are guaranteed, as the former Establishment of Free Export Zone Act was centered around the manufacturing, and has arrived at its present form after going through three amendments, since its whole amendment in Main Contents Free Trade Zones shall, upon a request of the Mayor/Do governor, be designated by the Minister of Commerce, Industry and Energy among the areas in which free manufacture, distribution and trade activities are guaranteed by relaxing the regulation under the relevant Acts, such as the Customs Act and social overhead capital facilities including industrial complexes or peripheral areas of airports or harbors are sufficiently secured. A person who intends to establish any enterprise in a Free Trade Zone and carry on the business shall obtain the permission of the Minister of Commerce, Industry and Energy, and if the person fails to implement the conditions attached at the time when such establishment is permitted, or fails to conclude a contract for the sale and purchase of factory sites after obtaining such permission, the permission may be revoked. Eligibility for a Free Trade Zone enterprise shall be restricted to an enterprise or any other foreign-invested enterprise which conducts manufacture or logistics businesses the principal purpose of which is export or wholesale business the principal purpose of which is export or import trade, but if necessary for the promotion of trade or the disposal of logistics, an enterprise of the Republic of Korea shall be included. Where any Free Trade Zone enterprise which is a foreign-invested enterprise leases the State-owned land, the maximum period of such lease shall be 50 years.

2 Any person who intends to carry foreign goods to a Free Trade Zone shall report their name, scale and volume to the head of a customshouse, and if goods processed, in a Free Trade Zone, with foreign goods used as raw materials, are carried to any other domestic area, the import thereof shall be reported and the customs duties thereon shall be paid. Except for part of goods the export of which is restricted under the Foreign Trade Act, in a Free Trade Zone, the free export or import may be permitted by the approval of the Minister of Commerce, Industry and Energy, regardless of whether or not any export or import is restricted under an individual Act. With respect to a Free Trade Zone enterprise, various regulations shall be relaxed, including the exemption from charges for traffic inducement. Wholly Amended by Jan. 12, 2000 Act No Amended by Dec. 29, 2000 Act No Aug. 14, 2001 Act No Jan. 26, 2002 Act No CHAPTER I GENERAL PROVISIONS?Article 1 (Purpose) The purpose of this Act is to contribute to the development of national economy by designating and operating a Free Trade Zone in which free manufacture and trade activities are guaranteed, to induce foreign investment and promote international trade along with regional development. Article 2 (Definitions) The definitions of terms used in this Act shall be as follows: 1. The term "Free Trade Zone" means an area designated under Article 4 in which the relevant Acts such as the Foreign Trade Act and the Customs Act are eased and thereby free operation of manufacture, distribution and trade is guaranteed; 2. The term "foreign-invested enterprise" means an enterprise as referred to in the provisions of subparagraph 6 of Article 2(1) of the Foreign Investment Promotion Act and dedicated to a type of business other than the one from which foreign investment is excluded; 3. The term "factory" means a factory as referred to in the provisions of subparagraph 1 of Article 2 of the Industrial Placement and Factory Construction Act;

3 4. The term "customs area" means an area other than Free Trade Zones and where customs duties are levied; 5. The term "Free Trade Zone enterprise" means an enterprise which is, under the provisions of Article 10, eligible to be located in Free Trade Zones and granted a permission to be located therein by the Minister of Commerce, Industry and Energy under the provisions of Article 9; 6. The term "import" means such import as prescribed in subparagraph 1 of Article 2 of the Customs Act; and 7. The term "export" means such export as prescribed in subparagraph 2 of Article 2 of the Customs Act. Article 3 (Relationship with Customs Act) Except as provided in this Act, the Customs Act shall not apply to Free Trade Zones. CHAPTER II DESIGNATION OF FREE TRADE ZONES Article 4 (Designation of Free Trade Zones) (1) The head of the Central Administrative Organ, the Special Metropolitan City Mayor, a Metropolitan City Mayor, or a Do Governor (hereinafter referred to as a "Mayor/Do Governor") may request that the Minister of Commerce, Industry and Energy designate an area as a Free Trade Zone. In this case, the head of the Central Administrative Organ or the Mayor/Do Governor which requests such designation shall in advance have consultations with the head of the competent Central Administrative Organ including the Minister of Construction and Transportation. (2) The Minister of Commerce, Industry and Energy shall designate the area as a Free Trade Zone through the deliberation of the Free Trade Zone Council under the provisions of Article 36, following a review of the conditions of the area, the necessity for such a designation and the requirements thereof as provided in the provisions of Article 5. (3) When a Free Trade Zone has been designated pursuant to the provisions of paragraph (2), the Minister of Commerce, Industry and Energy shall publish its location, boundary, and size as well as other matters as set forth in the Presidential Decree, and without delay notify the head of the Central Administrative Organ and the Mayor/Do Governor concerned of the contents of the publication. (4) The Mayor/Do Governor, who has been notified pursuant to the provisions of paragraph (3), shall make the contents of the notification available to the general public for inspection for not less than 14 days.

4 (5) In designating a Free Trade Zone under the provisions of paragraph(2), the Minister of Commerce, Industry and Energy may, if deemed necessary, designate the area as a scheduled area of the Free Trade Zone. In this case, the foregoing paragraphs (3) and (4) shall apply mutatis mutandis to procedures for the designation of a scheduled area. Article 5 (Requirements for the Designation of Free Trade Zones) An area complying with the requirements falling under the following subparagraphs shall be designated as a Free Trade Zone: 1. An area, which falls under the following items, with a sufficient building site available for the accommodation, etc. of manufacturing and distribution facilities: (a) A peripheral area of an airport as referred to in the provisions of subparagraph 5 of Article 2 of the Aviation Act; (b) A peripheral area of a harbor as referred to in the provisions of subparagraph 1 of Article 2 of the Harbor Act; (c) An industrial park as referred to in the provisions of subparagraph 5 of Article 2 of the Industrial Sites and Development Act; and (d) Other area as set forth in the Presidential Decree. 2. An area where sufficient social infrastructure including roads is secured or likely to be secured. Article 6 (Cancellation of Free Trade Zone Designation, etc.) Either in case where it is deemed that the grounds for the designation of a Free Trade Zone cease to exist or where the head of the Central Administrative Organ or the Mayor/Do Governor concerned makes a request for cancelling the designation of a Free Trade Zone with credible reasons justifying the request, the Minister of Commerce, Industry and Energy may cancel the designation of the Free Trade Zone or may partially downsize the designated Free Trade Zone. In this case, the provisions of Article 4 shall apply mutatis mutandis to the procedures for the cancellation or downsizing. CHAPTER III MANAGEMENT AND LOCATION IN FREE TRADE ZONES Article 7 (Administrative Authority) (1) The Minister of Commerce, Industry and Energy shall become the administrative authority for the management of a Free Trade Zone.

5 (2) The administrative authority shall perform the functions for the management of a Free Trade Zone falling under the following subparagraphs: 1. Assistance to business operations of Free Trade Zone enterprises; 2. Maintenance and management of public facilities; 3. Installation and operation of a variety of supporting facilities; and 4. Other matters necessary for management and operation of a Free Trade Zone. Article 8 (Division of a Free Trade Zone) The Minister of Commerce, Industry and Energy may divide a Free Trade Zone, according to its functions and characteristics, into areas of production and supporting as well as other areas set forth in the Presidential Decree with a view to efficient handling of the affairs of management. Article 9 (Permission to Be Located in a Free Trade Zone) (1) A person who intends to do business by locating his enterprise in a Free Trade Zone shall, in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy, be granted a permission by the Minister of Commerce, Industry and Energy. The same shall apply when he intends to change such matters set forth in the Ordinance of the Ministry of Commerce, Industry and Energy among those permitted by the Minister of Commerce, Industry and Energy. (2) In granting a permission under the provisions of paragraph (1), the Minister of Commerce, Industry and Energy may provide a preferential treatment to a person operating a type of business accompanied by high technology of vital importance for the promotion of international competitiveness of domestic industries under the provisions of subparagraph 1 of Article (1) of the Restriction of Special Taxation Act. (3) Where a person who intends to be located in a Free Trade Zone has been granted a permission pursuant to the provisions of paragraph(1), it shall be deemed that he has been given an approval for the construction or enlargement of a factory or for the change of the type of business under the provisions of Article 13 of the Industrial Placement and Factory Construction Act and also an approval for the construction, enlargement or transfer of a factory or for the change of the type of business under the provisions of Article 20 of the same Act. (4) Where the Minister of Commerce, Industry and Energy has granted a permission under the provisions of paragraph (1), a certificate of Free Trade Zone location may be issued, in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy, in lieu of a certificate of factory registration provided for in the provisions of Article 16(1) of the Industrial Placement and Factory Construction Act. Article 10 (Eligibility To be Located in a Free Trade Zone)

6 (1) A person who intends to be located in a Free Trade Zone shall comply with the requirements falling under the following subparagraphs, provided that a person operating the type of business referred to in the provisions of subparagraph 1(a) shall primarily aim for export: 1. He shall operate any of the following types of business: (a) Type of manufacturing business as set forth in the Presidential Decree; (b) Type of goods distribution business as set forth in the Presidential Decree; (c) Wholesale business the principal purpose of which is export or import trade; and (d) Type of business for supporting any other business of a Free Trade Zone enterprise, which is prescribed by the Presidential Decree; and 2. His enterprise shall be a foreign-invested one. (2) Notwithstanding the provisions of paragraph (1)2, the Minister of Commerce, Industry and Energy may, in consultation with the Minister of Finance and Economy, allow a non-foreign-invested enterprise conforming with the requirements provided for in paragraph (1)1 to be located in a Free Trade Zone if it is deemed necessary for the promotion of trade, the facilitation of goods distribution, and the support for the operation of Free Trade Zone enterprises. Article 11 (Revocation of Permission, etc. of Establishment in Free Trade Zone) (1) In case a Free Trade Zone enterprise falls under any of the following subparagraphs, the Minister of Commerce, Industry and Energy may revoke the permission of its establishment in a Free Trade Zone: 1. Where it conducts any business other than that which is permitted under Article 9 (1); 1-2. Where it fails to implement those conditions which are attached to the permission under Article 9 (1); 2. Where it loses any eligibility for establishment in a Free Trade Zone under Article 10; 3. Where it fails to enter into a contract for sale or lease of any land or factory in the Free Trade Zone in question within any such period not exceeding two months as fixed by the Ordinance of the Ministry of Commerce, Industry and Energy; 3-2. Where, after leasing a State-owned factory, it fails to complete the establishment of facilities necessary to attain its business purpose within any period as fixed by the Ordinance of the Ministry of Commerce, Industry and Energy after a contract for such lease is concluded;

7 3-3. Where it fails to obtain the permission of construction within any such period not exceeding 6 months as fixed by the Ordinance of the Ministry of Commerce, Industry and Energy after its establishment in a Free Trade Zone is permitted; 3-4. Where it fails to enter into a re-contract within any such period not exceeding one month as fixed by the Ordinance of the Ministry of Commerce, Industry and Energy after a sale or lease contract terminates; or 4. Where it closes or suspends its business without any justifiable reason for any such period as prescribed by the Ordinance of the Ministry of Commerce, Industry and Energy. (2) A Free Trade Zone enterprise shall, when its permission for a Free Trade Zone location has been revoked under paragraph (1), promptly suspend its business operation except for the performance of its duty to implement export or import already contracted at the time of the cancellation as well as the handling of other relevant pending affairs set forth in the Ordinance of the Ministry of Commerce, Industry and Energy. (3) A person whose permission has been cancelled pursuant to the provisions of paragraph (1) shall, in accordance with the Presidential Decree, transfer his own lands, factories, buildings and other facilities in the Free Trade Zone (hereinafter referred to as "factories, etc.") to a Free Trade Zone enterprise or a third person eligible to be located in a Free Trade Zone that the Minister of Commerce, Industry and Energy has selected. (4) The Minister of Commerce, Industry and Energy may, in accordance with the Presidential Decree, purchase lands or factories, etc. that fail to be transferred pursuant to the provisions of paragraph (3) at prices publicly announced under the provisions of Article 12(2). Article 12 (Sale or Lease of State-owned Lands or Factories, etc) (1) The Minister of Commerce, Industry and Energy may, in accordance with the Presidential Decree, sell or lease state-owned lands or factories, etc. in a Free Trade Zone to Free Trade Zone enterprises following a procedure for taking over the right of their management from the other Government Office in charge or for being empowered to manage and dispose of them by the Minister of Finance and Economy. (2) Notwithstanding the provisions of Articles 25(1) and 34 of the State Property Act, the price or rent for the lands or factories, etc. which are sold or leased under the provisions of paragraph (1), shall be publicly announced by the Minister of Commerce, Industry and Energy in consultation with the Minister of Finance and Economy, and such price or rent may, if necessary, be indicated in foreign currencies. (3) The provisions of Article 13 (2) and (9) of the Foreign Investment Promotion Act shall apply mutatis mutandis to the period of lease of a Free Trade Zone enterprise which is a foreign-invested enterprise.

8 (4) The period of lease of a Free Trade Zone enterprise other than a foreign-invested enterprise shall not exceed 10 years: Provided, That if the Minister of Commerce, Industry and Energy deems it necessary to extend that period, it may be renewed within the limit of 10 years. Article 13 (Deferred Payment or Installments for Purchase Price of Lands or Factories, etc.) In connection with the sale of lands or factories, etc. in a Free Trade Zone, the Minister of Commerce, Industry and Energy may, notwithstanding the provisions of Article 40(1) of the State Property Act, allow deferred payment or installments for the purchase price in accordance with the Presidential Decree if it is deemed that the purchaser may have difficulty in paying the price in a lump sum. Article 14 (Demand for Rent, etc. and Disposition on Default) When a Free Trade Zone enterprise that has leased lands or factories, etc. pursuant to the provisions of Article 12 fails to pay rent within the due date, the Minister of Commerce, Industry and Energy may demand the payment with a newly set reasonable time-limit and still, and if the rent is not paid within the time-limit, he may terminate the lease contract or collect the rent by referring to the practices of disposition on default of national taxes. Article 15 (Maintenance Expenses of Common Facilities) (1) The Minister of Commerce, Industry and Energy may charge Free Trade Zone enterprises expenses needed to maintain and operate such facilities as set forth in the Ordinance of the Ministry of Commerce, Industry and Energy among common facilities in a Free Trade Zone (hereinafter in this Article referred to as "maintenance expenses"). (2) Terms and methods for the charge of the maintenance expenses provided for in the provisions of paragraph(1) and other necessary matters shall be set forth in the Presidential Decree. (3) The provisions of Article 14 shall apply mutatis mutandis to the demand for the payment of the maintenance expenses and disposition on default thereof. CHAPTER IV OBLIGATIONS OF FREE TRADE ZONE ENTERPRISES Article 16 (Restriction on Disposal of Lands or Factories, etc.) (1) When a Free Trade Zone enterprise intends to dispose of lands or factories, etc. that it has purchased in lots before completing the construction of factories, etc. it shall transfer them to the Minister of Commerce, Industry and Energy. In this case, the provisions of Article 11(4) shall apply mutatis mutandis to the price of transfer. (2) When the Minister of Commerce, Industry and Energy considers it difficult to take over the lands or factories, etc. pursuant to the provisions of paragraph (1), he may, in accordance with the

9 Presidential Decree, allow the Free Trade Zone enterprise to transfer them to another Free Trade Zone enterprise or a third person eligible to be located in a Free Trade Zone that he has selected. (3) When a Free Trade Zone enterprise transfers or lends (Sublease is included. Hereinafter the same applies.) lands or factories, etc. that he has owned or leased in a Free Trade Zone or otherwise allows another person to use them, the other contracting party shall be a Free Trade Zone enterprise or a third person who is eligible to be located in a Free Trade Zone. (4) When factories, etc. built on the state-owned lands are transferred, leased, or provided for the use by another person in connection with paragraph (3), it shall be reported to the Minister of Commerce, Industry and Energy. Article 17 (Acquisition of Lands or Factories, etc. by Auction, etc.) (1) A person who has acquired lands or factories, etc. in a Free Trade Zone by auction or pursuant to the provisions of other Acts shall dispose or make use thereof in conformity with requirements falling under the following subparagraphs: 1. He shall obtain a permission to be located in a Free Trade Zone pursuant to the provisions of Article 9 in accordance with the Presidential Decree, provided that this shall not apply in case the person who has acquired or merged a Free Trade Zone enterprise is eligible to be located in a Free Trade Zone and operates the same type of business as permitted originally; 2. When he fails to obtain a permission to be located in a Free Trade Zone pursuant to the provisions of subparagraph 1, he shall transfer the lands or factories, etc. to a Free Trade Zone enterprise or a third person eligible to be located in a Free Trade Zone that the Minister of Commerce, Industry and Energy has selected in accordance with the Presidential Decree; and 3. When the lands or factories, etc. fail to be transferred pursuant to the provisions of subparagraph 2, he shall transfer them to the Minister of Commerce, Industry and Energy. (2) With respect to the price of transfer in case of transferring the lands or factories, etc. to the Minister of Commerce, Industry and Energy pursuant to the provisions of paragraph (1)3, the provisions of Article 11(4) shall apply mutatis mutandis. Article 18 (Access to Free Trade Zones, etc.) A person or a vehicle that intends to enter and leave a Free Trade Zone shall bear or carry an access certificate or a pass issued by the Minister of Commerce, Industry and Energy in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy. CHAPTER V CONTROL OF GOODS AND LEVY OF CUSTOMS DUTIES

10 Article 19 (Freedom of Business Operations in a Free Trade Zone) The Minister of Commerce, Industry and Energy or the head of a customshouse shall guarantee the freedom of business operations inside a Free Trade Zone, and shall not demand, except as provided for in this Act, that Free Trade Zone enterprises report on or obtain a permission for their manufacturing, distribution, trade, and other business operations and movement of goods which are conducted inside a Free Trade Zone. Article 20 (Carrying or Import of Goods into Free Trade Zone) (1) Any person who intends to carry such foreign goods as prescribed in subparagraph 3 of Article 2 of the Customs Act to a Free Trade Zone shall report the name, standard and quantity of those foreign goods to the head of a customshouse having jurisdiction over the relevant Free Trade Zone (hereinafter referred to as the "head of a customshouse") as determined by the Commissioner of the Korea Customs Service. (2) Any person who carried or carries such domestic goods as prescribed by the Presidential Decree, from among those under subparagraph 4 of Article 2 of the Customs Act, to a Free Trade Zone, may report their name, standard and quantity to the head of a customshouse for their identification as the Commissioner of the Korea Customs Service determines. (3) In case any person intends to take an act falling under any of the following subparagraphs in a Free Trade Zone, he shall, in accordance with Article 241 of the Customs Act, file an import declaration and pay customs duties: 1. Where the said person who conducts any such business as prescribed in Article 10 (1) 1 (a) and (b) intends to carry foreign goods not falling under any of the following items to a Free Trade Zone for the purpose of using or consuming them therein: (a) Machines, appliances, installations and equipments, and their parts (hereinafter referred to as "equipment property"); (b) Raw materials, lubricants, office computers, and construction materials; and (c) Other goods as determined by the Commissioner of the Korea Customs Service after recognizing them to be necessary for the attainment of business purpose; 2. Where the said person intends to carry goods manufactured, processed or assembled by using all or part of foreign goods in a Free Trade Zone to a customs area; 3. Where the said person intends to carry such foreign goods as reported under paragraph (1) above and other goods supplied to a Free Trade Zone under subparagraph 3 of Article 4 of the Act on Special Cases concerning the Refundment of Customs Duties, etc. Levied on Raw Materials for Export (hereinafter referred to as "supplied goods") to a customs area as they are;

11 4. Where the said person who conducts any such business as prescribed in Article 10 (1) 1 (c) intends to carry foreign goods to a Free Trade Zone for the purpose of directly using or consuming them therein; and 5. Where the said person who conducts any such business as prescribed in Article 10 (1) 1 (d) intends to carry foreign goods to a Free Trade Zone. (4) In determining the procedures, etc. for a report under paragraph (1) and the identification under paragraph (2), the Commissioner of the Korea Customs Service shall reflect opinions of the Minister of Commerce, Industry and Energy therein. Article 21 (Carrying and Export of Goods to Customs Area) (1) Any person who intends to carry domestic goods in a Free Trade Zone to a customs area shall submit evidential documents identifying them, such as a written confirmation thereof issued under Article 20 (2), a detailed statement of transactions and a tax bill, to the head of a customshouse : Provided, That this shall not apply to goods as prescribed by the Presidential Decree, such as vehicles having access to the Free Trade Zone and belongings of persons having access thereto. (2) In case any person intends to take an act falling under any of the following subparagraphs in a Free Trade Zone, he shall file an export or return declaration under Article 241 of the Customs Act: 1. Where he intends to carry the goods whose introduction is reported under Article 20 (1) out of the Republic of Korea as they are; 2. Where he intends to carry such goods as prescribed in Article 20 (3) 2 out of the Republic of Korea; and 3. Where he intends to carry domestic goods in a Free Trade Zone out of the Republic of Korea. (3) Deleted. Article 22 (Inspection, etc. of Goods) (1) The head of a customshouse shall, pursuant to Article 246 of the Customs Act, inspect or ascertain such goods as taken in or out, imported, exported or returned under Articles 20 and 21 of this Act. (2) Notwithstanding the provisions of Article 247 of the Customs Act, the inspection or ascertainment of such goods as prescribed in paragraph (1) of this Article shall carried out in any place or warehouse in which said goods are stored (limited to a case in which those goods are stored in a enterprise conducting warehousing business) within the premises of a Free Trade Zone enterprise.

12 (3) The head of a customshouse may, under the conditions determined by the Commissioner of the Korea Customs Service, inspect such goods as are carried or transported by the persons who have access to a Free Trade Zone. Article 23 (Records, etc. of Inventories) (1) As determined by the Commissioner of the Korea Customs Service, a Free Trade Zone enterprise shall record necessary matters for the management of inventories, such as the names, dimensions, quantities and prices of such goods as prescribed in any of the following subparagraphs: Provided, That this shall not apply to such goods as prescribed by the Presidential Decree, including goods whose value does not exceed any such amount as determined and publicly announced by the Commissioner of the Korea Customs Service: 1. Goods carried to a Free Trade Zone; 2. Goods used, consumed or produced in a Free Trade Zone; and 3. Goods taken out of a Free Trade Zone. (2) In case foreign goods and supplied goods are destroyed or lost, a Free Trade Zone enterprise shall make report to the head of a customshouse as determined by the Commissioner of the Korea Customs Service. (3) A Free Trade Zone enterprise shall, in accordance with the Presidential Decree, preserve the records kept pursuant to the provisions of paragraph (1). Article 24 (Inspection of Inventory Management in Free Trade Zone Enterprises) (1) The head of a customshouse may inspect a Free Trade Zone enterprise in order to ascertain whether it has performed its obligation to manage inventories under the provisions of Article 23. (2) The head of a customshouse may require a Free Trade Zone enterprise to produce accounting books, raw materials and products ledger and other materials necessary to conduct an inspection under the provisions of paragraph (1). (3) A Free Trade Zone enterprise shall not refuse or obstruct the inspection under the provisions of paragraph (1) nor decline the production of the materials under the provisions of paragraph (2) without any justifiable reason. (4) In case it is found that inventories of foreign goods are deficient as a result of the inspection under paragraph (1), the head of a customshouse shall, without delay, collect customs duties thereon from the Free Trade Zone enterprise concerned as prescribed by the Presidential Decree: Provided, That this shall not apply in case it is ascertained that the goods the loss of which is reported under Article 23 (2) are in a Free Trade Zone, or those goods are destroyed due to a natural disaster or any other inevitable reason.

13 Article 25 (Report and Approval of Transfer or Lending of Goods, etc.) (1) When a Free Trade Zone enterprise intends to transfer or lend the capital goods referred to in the provisions of Article 22 of the Foreign Investment Promotion Act or use them for a purpose other than the original one, it shall report this to the Minister of Commerce, Industry and Energy. (2) When a Free Trade Zone enterprise intends to use raw materials and mechanical equipment for earning foreign currencies or the goods manufactured by the use thereof for a purpose other than the original one pursuant to the provisions of Article 20 of the Foreign Trade Act, it shall be given an approval thereof by the Minister of Commerce, Industry and Energy. Article 26 (Special Cases with Respect to Approval of Export or Import under Foreign Trade Act) (1) Any person who intends to either carry foreign goods to a Free Trade Zone or carry other goods to a foreign country may do so after obtaining the approval of the Minister of Commerce, Industry and Energy, only if they do not fall under those subject to an adjustment order under Article 43 of the Foreign Trade Act, from among those whose export or import is restricted under Article 14 of the same Act. In this case, the approval of the Minister of Commerce, Industry and Energy shall be deemed to be that granted under the Foreign Trade Act. (2) Goods which are governed by export and import rule as integrated and publicly announced under Article 15 of the Foreign Trade Act may, notwithstanding any other export and import rule as determined by the administrative agency concerned, be carried to a Free Trade Zone or to a foreign country: Provided, That this shall not apply to goods subject to the import restriction which are separately determined in a relevant integrated announcement, including narcotics, firearms and rotted foodstuff. (3) In case any person intends to carry such goods as prescribed in paragraph (1) to a customs area, he shall obtain approval of the Minister of Commerce, Industry and Energy. In this case, the approval of the Minister of Commerce, Industry and Energy shall be deemed to be that granted under the Foreign Trade Act. (4) In case any person intends to carry such goods as prescribed in paragraph (2) above to a customs area, he shall comply with export and import rule as determined in an integrated announcement under Article 15 of the Foreign Trade Act. Article 27 (Approval, etc. of Processing outside a Free Trade Zone) (1) In case a Free Trade Zone enterprise intends to carry foreign goods to a customs area and to carry them to a Free Trade Zone again after processing them, it shall, in advance, determine their category and the period and place that they are carried to a customs area and obtain approval of the Minister of Commerce, Industry and Energy in accordance with the Presidential Decree.

14 (2) In case a Free Trade Zone enterprise intends to carry such goods as approved under paragraph (1) directly to a place in the relevant Free Trade Zone from a foreign country, it shall make report to the head of a customshouse as determined by the Commissioner of the Korea Customs Service. The same shall apply in case goods which are processed in a place in the relevant Free Trade Zone are exported directly to a foreign country or carried to a customs area, or waste articles generated from such processing are disposed of. (3) In case those goods which are approved under paragraph (1) are carried to a customs area or to a Free Trade Zone, the head of a customshouse may inspect or ascertain them. (4) Those foreign goods which are carried to any designated place with approval under paragraph (1) shall be deemed to remain in a Free Trade Zone until the expiration of the designated period. (5) With respect to the foreign goods remaining in a customs area even after the expiration of the period that they are carried thereto under paragraph (1), the head of a customshouse shall collect customs duties thereupon without delay. Article 28 (Temporary Carrying-out or Bringing-in of Goods) When a Free Trade Zone enterprise intends to temporarily take goods out of, or bring them into the Free Trade Zone for the purpose of repair, sample exhibition, testing-inspection, etc. it shall, in accordance with the Presidential Decree, be given an approval thereof by the head of a customshouse. Article 29 (Relations between This Act and Other Acts and Decrees concerning Keeping and Use of Goods) The keeping and use of goods brought in or imported into a Free Trade Zone shall, except for the matters provided for in this Act, comply with the conditions determined by the Minister of Commerce, Industry and Energy in consultation with the Commissioner of the Korea Customs Service. Article 30 3 (Application, etc. of the Customs Act) The Customs Act shall apply, except for the matters provided for in this Act, in case foreign goods are taken out into a customs area. CHAPTER VI ASSISTANCE TO BUSINESS OPERATIONS Article 31 (Reduction or Exemption of Taxes and Rents) (1) Corporate tax, income tax, acquisition tax, registration tax, property tax, aggregate land tax, etc. for Free Trade Zone Enterprises may, under the conditions as provided for in the Restriction of Special Taxation Act, be reduced or exempted.

15 (2) A foreign-invested enterprise, which is located in a Free Trade Zone, shall be deemed to be the one located in a foreign-invested area under the provisions of Article 18 of the Foreign Investment Promotion Act. In this case, rent for the foreign-invested enterprise may be reduced or exempted pursuant to the provisions of Article 13(6) of the Foreign Investment Promotion Act. (3) In addition to the reduction under the provisions of paragraph (2), rent may be reduced or exempted for a foreign-invested enterprise engaged in a business accompanying high technology of vital importance for the strengthening of international competitiveness of domestic industries provided for in the provisions of subparagraph 1 of Article of the Restriction of Special Taxation Act. Article 32 (Levy of Customs Duties) (1) In case of Article 20 (3) 2, the goods in question shall be deemed to be those arriving in the Republic of Korea from a foreign country and customs duties shall be levied thereon. In this case, with respect to domestic goods which are used as raw materials after the confirmation of the head of a customshouse, the price or quantity of such domestic goods at the time when they are carried to a Free Trade Zone shall, in accordance with the Presidential Decree, be deducted from the base of customs duties on those which are produced through the manufacture, processing or assemblage. (2) In case foreign goods other than those as referred to in paragraph (1) are imported out of a Free Trade Zone into a customs area, customs duties thereupon shall be imposed on the basis of the price or the quantity at the time of their import declaration. Article 33 (Special Case of Construction of Factories and Acquisition of Lands) (1) The Minister of Commerce, Industry and Energy, Free Trade Zone enterprises and other persons set forth in the Presidential Decree may construct factories, etc. in a Free Trade Zone. (2) When those who construct factories, etc. under the provisions of paragraph (1) lease the state-owned lands, they may, notwithstanding the provisions of Article 24(3) of the State Properties Act, build factories and other permanent facilities on these lands. In this case, the Minister of Commerce, Industry and Energy may lend the lands on the condition that the facilities should be donated to the State or the lands be returned with their original state restored at the expiration of the lease contract, considering the types of the facilities, etc. (3) In applying the Building Act to the construction of factories and other structures, the "Special Metropolitan City Mayor, Metropolitan City Mayor, Do governor" or the "head of Si/Gun/Gu" under the Act shall be deemed to be "the Minister of Commerce, Industry and Energy" respectively. (4) When a foreign-invested enterprise intends to acquire lands in a Free Trade Zone, it shall, notwithstanding the provisions of Articles 4(1) and 6 of the Foreigner's Land Acquisition Act, report the fact to the Minister of Commerce, Industry and Energy.

16 Article 34 (Relations between This Act and Other Acts) (1) The provisions of Article 31 of the Act on the Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State shall not apply to Free Trade Zone enterprises. (2) Factories of Free Trade Zone enterprises, notwithstanding the provisions of Article 18 of the Urban Traffic Readjustment Promotion Act, shall be exempt from the fee for the inducement of heavy traffic. (3) The provisions of Articles 4 and 12 of the Act on the Protection of the Business Sphere of Small and Medium Enterprises and Promotion of Their Cooperation shall not apply to Free Trade Zone enterprises. Article 35 (Assistance, etc. to Technical Development Activities of Free Trade Zone Enterprises) (1) The State and Local Government may provide financial assistance to help Free Trade Zone enterprises promote their technical development activities and human resources training. (2) In order to assist the business operations of Free Trade Zone enterprises, the State and Local Government shall endeavor to maintain and repair factories, etc. leased to the enterprises and to expand a variety of basic infrastructures including medical facilities, educational institutions and housings, etc. and may provide any necessary financial assistance therefor. CHAPTER VII ESTABLISHMENT OF FREE TRADE ZONE COUNCIL Article 36 (Free Trade Zone Council) (1) The Free Trade Zone Council (hereinafter referred to as the "Council") shall be established in the Ministry of Commerce, Industry and Energy in order to deliberate the matters of the following subparagraphs: 1. Matters concerning basic policies and systems for a Free Trade Zone; 2. Matters concerning the designation and its cancellation of a Free Trade Zone; 3. Matters concerning assistance to Free Trade Zone enterprises; 4. Matters concerning cooperation and adjustment of opinions with the head of the Central Administrative Organ and a Mayor/Do Governor with respect to a Free Trade Zone; 5. Matters concerning assistance to the Local Government where a Free Trade Zone is located; and

17 6. Other matters, as set forth in the Presidential Decree, necessary for designation and operation of a Free Trade Zone. (2) The Minister of Commerce, Industry and Energy shall be the chairperson of the Council and the other members of the Council shall be appointed by the President. (3) The Free Trade Zone Working Committee (hereinafter referred to as the "Working Committee") shall be established as an organ of the Council in order to review and coordinate matters for deliberation by the Council as well as to deal with the matters delegated by the Council. (4) Matters required for organization and operation of the Council and the Working Committee, other than those provided for in the provisions of paragraphs (1) through (3), shall be set forth in the Presidential Decree. CHAPTER VIII SUPPLEMENTARY PROVISIONS Article 37 (Establishment, etc. of Branch Offices) Agencies in charge of the services required for the business operation of Free Trade Zone enterprises may establish their branch offices or have their employees stationed in a Free Trade Zone in order to provide prompt services. Article 38 (Hearings) When the Minister of Commerce, Industry and Energy intends to cancel a permission for Free Trade Zone location pursuant to the provisions of Article 11, he shall hold a hearing. Article 39 (Delegation of Authority) (1) The head of the Central Administrative Organs may, in accordance with the Presidential Decree, delegate a part of their authority to the Minister of Commerce, Industry and Energy. (2) A part of the authority of the Minister of Finance and Economy or other competent Ministers under the Foreign Investment Promotion Act with respect to the foreign capital introduced by Free Trade Zone enterprises may, in accordance with the Presidential Decree, be delegated to the Minister of Commerce, Industry and Energy. (3) The Minister of Commerce, Industry and Energy may, in accordance with the Presidential Decree, delegate a part of his authority under this Act to the Mayor/Do Governor, the head of the Central Administrative Organs or the head of their dependent agencies, or entrust it to other corporations set forth in the Presidential Decree. CHAPTER IX PENAL PROVISIONS Article 40 (Penal Provisions)

18 A person that uses, consumes or brings in foreign goods without an import declaration in violation of the provisions of subparagraph 1 or 4 of Article 20(3) shall be punished by the imprisonment with labor for not more than 5 years or by a fine not exceeding the equivalent to the higher sum out of either ten times the duty amount or the import price of the foreign goods. Article 41 (Penal Provisions) A person that falls under any of the following subparagraphs shall be punished by the imprisonment with labor for not more than 3 years or by a fine not exceeding 30 million won: 1. A person doing business in a Free Trade Zone without a permission for Free Trade Zone location under the former part of Article 9(1) or with a permission illegally obtained therefor; and 2. A person doing business without a permission for changing such matters as are subject to the permission under the latter part of Article 9(1). Article 42 (Penal Provisions) A person who, after the cancellation of his permission for Free Trade Zone location under the provisions of Article 11(1), continues the operation of the business other than the performance of the his duty provided for in paragraph (2) of the same Article shall be punished by the imprisonment with labor for not more than 2 years or by a fine not exceeding 20 million won. Article 43 (Penal Provisions) A person who falls under any one of the following subparagraphs shall be punished by a fine not exceeding 20 million won: 1. A person who has transferred lands or factories, etc. in violation of the provisions of Article 11(3), Article 16(1) through (3) or Article 17(1); 2. A person who fails to declare bringing in goods or makes a false declaration in violation of the provisions of Article 20(1); 3. A person who fails to submit evidential documents used to identify domestic goods in violation of Article 21 (1), or submits them falsely; 3-2. A person who fails to file an export or return declaration of goods in violation of Article 21 (2), or files a false export or return declaration; 4. A person who fails to make or preserve inventory records or makes false records in violation of Article 23(1) and (3); and 5. A person who refuses or obstructs an inspection or declines to produce materials without any justifiable reason in violation of the provisions of Article 24(3).

19 Article 44 (Penal Provisions) A person who falls under any of the following subparagraphs shall be punished by a fine not exceeding 10 million won: 1. A person who enters and leaves a Free Trade Zone without an access certificate or pass issued under Article 18; 2. A person who fails to report the destruction or loss of foreign goods in violation of Article 23 (2): 3. A person who carries foreign goods out of a Free Trade Zone without obtaining such approval as prescribed in Article 27 (1); and 4. A person who has temporarily taken out or brought in goods without the approval in violation of Article 28. Article 45 (Penal Provisions) Any person who carries goods from a Free Trade Zone to a customs area without filing an import declaration under Article 20 (3) 2 and 3 of this Act shall be punished pursuant to Articles 269 through 282 of the Customs Act and Article 6 of the Act on the Aggravated Punishment, etc. of Specific Crimes. Article 46 (Joint Penal Provisions) Where the representative of a corporation or an agent, a commercial servant, or any other employee of a corporation or an individual commits an act of violating Articles 40 through 44 as regards the business of the corporation or the individual, such a wrongdoer shall not only be punished accordingly but also the corporation or the individual shall be subject to a fine provided for in each relevant Article. Article 47 (Investigation and Treatment) The provisions of Chapter X (Articles 283 through 319) of the Customs Act shall apply to the investigation and treatment of a person who commits any act of violating the penal provisions of Article 40, subparagraphs 2 through 5 of Article 43 or subparagraphs 2 through 4 of Article 44 of this Act. ADDENDA Article 1 (Enforcement Date) This Act shall enter into force six months after the date of its promulgation. Article 2 (Transitional Measures concerning Free Export Zone)

20 (1) The free trade zone which was established by the previous Act on the Establishment of Free Export Zones at the time of enforcement of this Act shall be deemed to have been designated by this Act as the free trade zone. (2) Those who were granted permission for occupant industry pursuant to Article 8 of the previous Act on the Establishment of Free Trade Zones at the time of enforcement of this Act shall be regarded as having been granted permission for free trade zone location in accordance with the amended provision of Article 9 of this Act. (3) In case approval was given by the Minster of Commerce, Industry and Energy or permission granted by the head of customshouse pursuant to Article 13 of the previous Act on the Establishment of Free Export Zones at the time of enforcement of this Act, it shall be deemed that approval has been given by the said Minister or the said head pursuant to the amended provisions of Articles 27 and 28 of this Act. Article 3 (Transitional Measures concerning Penal Provisions) The provisions of the previous Act on the Establishment of Free Export Zones shall govern in the application of penal provisions to an offense committed before the enforcement of this Act. Article 4 (Relationship of This Act to Other Acts) In case the previous Act on the Establishment of Free Export Zones was cited in other Acts and subordinate statutes at the time of enforcement of this Act, this Act or the provisions corresponding thereto of this Act, if any, shall be deemed to have been cited. ADDENDA Article 1 (Enforcement Date) This Act shall enter into force on January 1, Articles 2 through 8 Omitted. ADDENDA Article 1 (Enforcement Date) This Act shall enter into force on the date of its promulgation. Article 2 (Applicable Cases concerning c Import Declaration of Goods and Payment of Customs Duties) The amended provisions of Article 20 (3) 2 shall apply to the goods the import of which is declared and which are initially carried to a customs area after this Act enters into force.

21 Article 3 (Transitional Measures concerning Report of Domestic Goods) At the time when this Act enters into force, domestic goods as prescribed by the Presidential Decree under the amended provisions of Article 20 (2) of this Act from among those which are reported to the head of a customshouse under the previous provisions of Article 20 (1) of this Act shall be deemed to be identified. Article 4 (Transitional Measures concerning Report of Carrying of Domestic Goods to Customs Area) If the carrying of domestic goods to a customs area is reported to the head of a customshouse under the previous provisions of Article 21 (1) at the time when this Act enters into force, such evidential documents as required under the amended provisions of Article 21 (1) shall be deemed to have been submitted. ADDENDA Article 1 (Enforcement Date) This Act shall enter into force six months after its promulgation. Articles 2 through 8 Omitted. Source: Access time: 05/08/2003